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ZURICH, April 19 (Reuters) – The Swiss National Bank regards the current rise in inflation as a temporary phenomenon, its chairman Thomas Jordan said on Tuesday, although the central bank is monitoring the situation closely.
Central banks, including the US Federal Reserve and the Bank of England, have started raising interest rates to combat rising prices, although the SNB has so far not raised its key rate, the lowest in the world at minus 0.75%.
Despite Swiss prices rising 2.4% in March from a year earlier, their highest level in years, rising energy costs and supply shortages pushed prices higher.
“Personally, I think a significant portion of inflation today could be temporary,” he said at an event in Washington. “But there is nevertheless a relatively large risk that some of this temporary inflation will turn into permanent inflation where all goods and services are affected,” he added.
If high inflation took hold, central banks needed to adjust monetary policy to ensure they didn’t lose credibility in their campaign to maintain price stability, Jordan said.
If central banks got their calculations wrong, there was a risk of too much inflation or unnecessary policy tightening, he added.
The SNB preferred to use interest rates to steer inflation, but also remained committed to using foreign currency purchases, Jordan said.
“We don’t really have an intermediate target for the exchange rate, but of course we take into account the exchange rate and we use interventions when we think the exchange rate is too strong and… causing the inflation in negative territory.”
Higher interest rates in other countries would also help the SNB, Jordan added, giving it more leeway with its own interest rates.
“As soon as the situation changes, we will be more than happy to return to a more traditional implementation of monetary policy where interventions do not have the same importance as today,” Jordan said.
Reporting by John Revill Editing by Marguerita Choy
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